November inflation seen at 2.4%-3.3%

MANILA, Philippines - Consumer prices are expected to climb for the third straight month in November to a range of 2.4 percent to 3.3 percent due to the damages caused by tropical storm Ondoy and typhoon Pepeng, the Bangko Sentral ng Pilipinas (BSP) said yesterday.

BSP Governor Amando M. Tetangco Jr. said that the expected inflation uptick this month would also be caused by the higher power rates imposed by the National Power Corp. (Napocor) and higher oil prices in the world market.

 “The pick up in inflation could be largely attributed to supply disruptions brought about by the recent typhoons and heavy rains; increases in utility rates and international crude,” Tetangco stressed.

Consumer prices averaged 3.2 percent from January to October this year compared with 9.4 percent in the same period last year. This after inflation kicked up to a five-month high of 1.6 percent in October from 0.7 percent in September.

Inflation eased steadily since February until it hit a 20-year low of 0.1 percent in August as Filipinos opted to go slow on spending due to the full impact of the global economic meltdown.

Amid the higher inflation this month, the BSP chief is still confident that consumer prices would still fall within the targets this year and next year despite higher food and oil prices.

“Despite an uptick, November inflation falling in this range would still be consistent with a within-target inflation for 2009 and 2010,” Tetangco said.

Inflation is seen averaging at 3.38 percent or well within the 2.5 percent to 4.5 percent target for this year and 4.2 percent or slightly below the target of 3.5 percent to 5.5 percent next year.

In fact, the BSP chief earlier said there is no pressure or urgency for the BSP to implement an exit strategy.

Since December last year, the central bank slashed its key policy rates by 200 basis points until July this year. This brought the overnight borrowing rate at a record low of four percent and the overnight lending rate at six percent.

Il Houng Lee, head of the visiting International Monetary Fund (IMF) mission, told reporters that inflation is projected to decline to 3.1 percent this year from 9.4 percent last year.

Lee said inflation would slightly pick up to 4.3 percent in 2010 as commodity prices and growth recover.

The team leader pointed out that IMF agrees with the central bank that the current policy stance should be maintained in the near term as the weak growth momentum, well-anchored inflation expectations, and contained cost pressures suggest monetary policy should remain accommodative.

 “Monetary tightening should only commence when the recovery is on a solid footing. The mission supports the authorities’ policy of limiting foreign exchange intervention to smoothing operations and allowing the exchange rate to adjust to market pressures,” Lee added.